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It’s official: global stock markets have entered bear market territory.
Last week, the MSCI All-Country World Index (ACWI), the de-facto benchmark for all global equities, fell more than 20% from its record high in 2015. That’s the technical definition of a bear market. But for many individual markets, the global selloff already seems much worse.
The S&P 500 Index has so far avoided that dubious distinction, but not by much. The blue-chip index had fallen “only” 14% from its peak last year before this week’s rebound attempt.
This masks the carnage beneath the surface of the U.S. stock market. In recent weeks, the broader Russell 2000 Index of small-cap stocks had tumbled 26% from the peak, while the Dow Jones Transportation Index fell over 30% from its high.
It’s clear the “average” domestic stock is already in bear market territory well ahead of the blue chips.
And the performance lag gets even worse for stock markets overseas.
In Europe, Germany’s DAX Index was recently down 26% from its peak, while France’s CAC 40 tumbled 28.3%.
Meanwhile, Japan’s Nikkei 225 Index has plunged 28.3%. So much for Abenomics!
And emerging markets are by far the hardest hit.
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India’s stock market has dropped 22.7% from last year’s peak, while Hong Kong is down 35.6%. And China’s mainland Shanghai Composite Index has been crushed for a loss of 48.6%.
So it would seem the S&P, along with the Dow Jones Industrial Average, are two of the very few stock indexes not already mired in an “official” bear market.
But not every stock and sector is following the broad market to the downside. Precious metals mining stocks are one of the few industries bucking the broad market downtrend.
The Philadelphia Gold and Silver Index (XAU) of mining stocks suffered a crushing four-year-plus bear market that started in 2011, with XAU down 82% since then.
But in 2016, gold and silver mining shares are glittering again. XAU is up 28.3% year to date, beating all other industry groups by a wide margin. The magnitude of the gains in precious metal stocks this year highlights the leveraged-upside potential in these shares.
After all, gold prices are up just 14% in 2016, but the average mining stock has gained twice as much!
Recently in Money and Markets I highlighted the allure of gold in today’s turbulent markets. Historically, gold has a low correlation with stocks. That means when stocks sag lower, as they have been in recent months, gold and mining stocks often surge higher, just as they have been doing in 2016.
Plus, my colleague Larry Edelson believes this may be just the opening act in a new bull market for gold and mining shares, and I agree.
It hasn’t been easy finding winners this year in global financial markets, with nearly every stock index either in a bear market already, or heading that way. But gold and silver stocks are enjoying their own private bull market and could have a lot further to run from here.
Good investing,
Mike Burnick
P.S. Next Tuesday, CNBC regulars Kathy Lien and Boris Schlossberg will be hosting their quarterly briefing for members of their Global Currency Investor wealth-building service.
In more normal times, these live events will be for MEMBERS ONLY. However, these are not normal times and this will not be a normal briefing.
It will be a solemn warning — and for some, a terrifying one — of the catastrophe now building in the global economy and the U.S. stock market.
It is vital that you attend this briefing. To make sure we can accommodate all of the viewers, we ask that you let us know you’re coming.
Simply click here to register, and you will be able to submit your questions for Boris and Kathy.
Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.
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Will you be naming companies to invest in, how about mutual funds?
Things may not be all that hunky-dory in the stock markets, but so far we have not been treated to the spectacle of stock brokers jumping out of office windows in skyscrapers.
What would be the smart way to use options in metals?
How far down do you think the market will go. Will the market bounce back
Where would be a good place to put money
I think that this gold rally will die out somewhere around 1240-1250. And the chart still shows that 700 is support….unless all hell breaks loose in the next few months.
Gold has been in a descending channel for about 2 1/2 years. Last week, it broke above the top line of the channel at around $1240, then promptly fell back into the channel, in what could be simply an overshoot due to it’s high velocity on that day. Unless it breaks above the channel again, and continues up, it could retreat further. the bottom of the channel, by the way, is currently around $1030, and slowly falling. Incidentally, gold won’t really get moving until it breaks through the descending line from the peaks of 2011 and 2012, currently at about $1490. That gives it a lot of room to vacillate.
There is one thing that is helping keep the price of gold up just now – the Saudi sabre rattling, with their Operation Northern Thunder. Has there ever been a “war games” involving 300,000 men, 200 planes and perhaps 20,000 tanks before? Anywhere? It could also be why oil has risen a bit.
2000 planes…